There have been 6.5 million jobs lost since the recession began in December 2007. Another 2.5 million formerly full time employees have been downgraded to working part–time.

Employment is the single biggest factor impacting late and delinquent credit payments. That makes this “no green shoots here either” data point inevitable:

“Late payments on home-equity loans rose to a record in the first quarter as 18 straight months of job losses and a slumping economy left more borrowers unable to pay their debts, the American Bankers Association reported.

Delinquencies on home-equity loans climbed to 3.52 percent of all accounts from 3.03 percent in the fourth quarter, and late payments on home-equity lines of credit climbed to a record 1.89 percent, the group reported today. An index of eight types of loans rose for a fourth straight quarter, to 3.23 percent from 3.22 percent in October through December, the group said. . .

Delinquent bank-card accounts jumped to a record 6.60 percent of outstanding card debt in the first quarter from 5.52 percent in the previous period, a signal unemployed borrowers are relying on cards as falling prices erode the equity in their homes. More borrowers are using cards to meet daily expenses after losing their jobs, the ABA said.”

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

41 Responses to “Home-Equity Loans Record Delinquency Rate”

Marine loans decreasing would not be a surprise. I have some friends in a cash crunch, and the easiest thing they could dump was a boat. They had to fire sell it, but at some level there’s definitely cash out there to pick up these sorts of toys on the cheap. Also, with RV’s, some people might end up having to live in their RVs, so they’ll make sure to keep up those payments. Credit cards? HELOCs? Second mortgages?….not so much.

Green shoots, Barry. Green shoots. Also, prominent restaurants closing here in Minny just about every week. Last week it was Morton’s. This week upscale seafood restaurant Oceanaire is keeping its Minny flagship store open but closing four others around the country. I’ll have to go get their debt numbers, but they are staggering, like many other people, companies, and gov’t entities in this country.

As to the RV market, the info I got a few years ago from an extremely large Southern California RV dealer was that the financing for the big RV’s was almost all mortgage equity extraction of one form or another. In some instances, it was part of a transition of selling a home, and buying another inland home and the RV as a second home. In many others it was cash-out refinances or HELOC’s. Loans on RV’s were higher than auto loans, and the longest 20-year terms required down payments as high as 25% .

When the mortgage equity extraction racket started declining, RV sales followed the path downhill.

With all these delinquencies and levered debt…and with an equity market that is “challenged” to say the least with regards to being the investment vehicle it was…and with the long term likelihood of bonds losing value when people eventually flee from the dollar…

I’m wondering something…

What happens to the plan for Mom & Dad to invest in a savings vehicle for a college education?

In addition…What justifications will be made in the future to even pursue a higher education (and the very high costs associated with that) with no savings, no help, & the difficulty in even finding a job once a student has earned their degree…

Franklin??? Are you going to do your civic duty and teach kids for FREE?

The X factor here is when there will be a true realignment of sentiment with the new reality. In the last month I’ve started getting calls from prospective Chapter 7 clients who are angry. Out of work for 6-9 months, out of savings, no near-term prospects of reemployment. Management and executive types. Normally, your typical Chapter 7 client is more on the shell-shocked/avoidant end of the spectrum. Anger and filing bk with a sense of vengeance is something new.

When the politicians lose the Boomers, they better look the hell out — and it’s happening now.

I’ll be curious to see how bankers stand up the next time they do one of those “most/least respected professions” polls.

This is Q4 compared to Q1 and fits with the rise in unemployment. With unemployment continuing to rise we would expect these number also to continue to rise. A few green shoots but a lot more and much bigger brown shoots. So the BIG PICTURE remains for worsening – although perhaps at a slower pace.

Tranzor; yes that would be the kind of people who fully understand what has been done to them, the country, and the economy. They would not buy into the “it’s the law of nature” kind of thing that Fox can sell to Joe 6 pack. If our masters cannot keep them the “villans” in the J6P community then things could get out of hand and very interesting.

I’m sure what you left out after the ellipsis in your 11:38 am comment (because you assumed everyone here already knows) is that in certain “barter” (AKA “swap”) transactions you can avoid paying capital gains taxes for the year the property swap transaction takes place because you are swapping basis with the other party — tricky transactions that are best made in consultation with a good tax attorney/CPA.

When I lived in Italy, MANY MANY transactions were bartered (so as to avoid paying VAT)…

I had a gym there…anybody with ANYTHING of use got free membership to our gym in exchange for what we [me & my business partners] needed…personal dental work, advertising, electronics, repair jobs, you name it…

Manny: The grey economy may be the only growing sector going forward….

Interesting segment on CNBC this morning on $1M houses in Minny-No-Place. Now LB had no idea that there were any $1M houses in Minny, lovely though she be, and they looked to LB kind of like, well, $500K houses next to some lakes that turn into hockey rinks from September to May. Sort of a reminder that the madness wasn’t confined to places in the CA Inland Empire and other desert locales.

At dinner last night in Manhattan, a friend who works for U.California system told me they expect 10% pay cuts this summer. That’s deflationary right there – if LB is not very much mistaken. The US has never really seen this kind of action by state and local governments, as we approach the singularity that occurs when the can has been kicked down the road to the point where the road runs out.

@leftback: Oh yes, you’d be surprised, shocked even, to see how many supposed “$1MM homes” there are here in Minny. Most of them are either lake-side, river-front, or in the older city neighborhoods like Kenwood, Minneapolis, Linden Hills, Cathedral Hill, St. Paul (old Victorian Mansions, including James J. Hill’s former home, now a museum). Most of the homes over $1MM aren’t selling at all. I mean none, as I’ve kept an eye on some of these places that have languished on the market literally for over 1-2 years now.

As a “full-timer” RVer (because of my job), I keep a very close eye on the RV market. Let me add some data:

Of those who buy an RV on credit, the average credit score is about 750 (excellent credit). As RVs are considered to be “luxury items,” usually “wealthier” people buy them.

I was just at an RV dealer yesterday asking about the market. Sales are down, but parts and repairs are way up (if you can get the parts, which is often a challenge).

Now, if you are thinking about buying an RV — particularly a motorhome — keep this in mind: combine everything that can go wrong with a big truck / auto, with everything that can wrong with a home and then combine them into one instrument.

The only reason it is cost effective for me is because I work all over the country now. And even then, it is not very cost effective at that. I don’t think they are worth the money if you are only using it for a vacation once in a while. But that is just me.

Recently, the stock market tumbled on news that housing foreclosures and delinquencies rose again in the first quarter.” The Office of the Comptroller of the Currency said that among the 34 million loans it tracks, foreclosures in progress rose 22 percent, to 844,389. That figure was 73 percent higher than in the same period last year. ”

Foreclosure rates have been growing fastest in states with predominantly high unemployment rates.With high job losses, house owners are unable to pay back the loans which they thought they would repay through their fat pay checks.
Read more http://www.housingnewslive.com/blog.php

that’s an interesting anecdote. something similiar came up just last night –paraphrasing, “there are going to be quite a few BoBo -s –who, now, think they’ve “lucked out”/”have it made”/”are fortunate”, that are going to be pauperized by the next turn of the Worm..”

Though, in comparison, I’d say the ones that are Angry, now, are going to be better off. The BoBo -s, we were speaking of, are more likely to turn into “Cat Ladies”..

at it again, are you? what straw man did you see in barry’s banker data? it seemed quite straightforward – loans are getting worse. the data are from 1Q, so one could quibble they are dated, or, stealing a page from your playbook, one could point out the improvement in boat loans as a green shoot. barry sort of stole your thunder on that one. as someone who is calling for continued elevated umemployment and a tepid recovery, none of this should surprise you.

I’m pretty laid-back and mild in most settings, including new client phone calls. So when new bk clients start dropping F-bombs in initial phone calls, I literally straighten up in my chair. Contrast with new divorce clients dropping F-bombs — which I’m not sure I even react to any more.

There’s a meme going around that there has been “over-employment” and that layoffs just amount to taking out the garbage/dead wood. I think maybe people should re-think that position. . . A little bit of “there but for the Grace of God” might be in order these days.

“There’s a meme going around that there has been “over-employment” and that layoffs just amount to taking out the garbage/dead wood. I think maybe people should re-think that position.”

True in a way. Life is not fair. Sometimes the dead wood doesn’t get taken out because of legal issues and/or a variety of local factors, but someone else takes the bullet. Over-employment is rediscovered in every recession.

There has unfortunately been “over-payment” as well as “over-employment”. Too many people were making too much money for not doing much, or for not being very good at it, or for doing stuff we don’t need, or because stuff gets done by computers or machines, a trend that has been in place since the Industrial Revolution. I have never understood why Americans work so many hours or weeks of the year. Unhealthy, and stifles creativity.

Lefty, yes. Clearly recessions — or even just isolated sector downturns — are an opportunity to do necessary “house cleaning.”

I’m reminded of the comedian Gallagher’s (the watermelon guy) old joke from the 80s:

“I’m convinced that 20% of all Americans are critically stupid. The problem is that the unemployment rate is only 10%.”

If you re-trace the hiring mentality, though, profitable times (in the private sector, anyway) always mean expansion — “Let’s get some more bodies in here to increase capacity.” It’s also, “Let’s get Mary some help in her unit now that we’ve got some money. They’ve been working their asses off in there and we want to keep her and her team.”

Nobody sets out to hire schmucks. It’s a little circular to say people were making too much for doing too little in a period of deflation, isn’t it? ;)

On a personal note I would add that those of us with two-earner households who had a late start having families are . . . fucking . . . tired, dude. All the time. And all of our friends with families are tired. We go to “parties” and start nodding off at 9 pm, if not earlier. A lot of Americans in that boat right now.

re: “There’s a meme going around that there has been “over-employment” and that layoffs just amount to taking out the garbage/dead wood. I think maybe people should re-think that position. . . A little bit of “there but for the Grace of God” might be in order these days.”

As you’ve noted, no doubt many fit into that category and recessions serve a purpose of shaking out inefficiencies, complacency and malinvestment. But those who go through life with the kind of arrogant attitude that those people in your statement reflect really need a dose of reality and a piece of humble pie. Life tends to serve it to you eventually, especially if your arrogance grows.

@Transor: I enrolled myself in an ultimate boxing class. First time I’ve done such a thing. It’s basically a high intensity circuit training class with some boxing (hitting the bag and mitts) mixed in. My third week into the class and although it’s very tough (2-3 days/week), I feel better than ever. I also was in decent shape before I started the class, but this has kicked things up a notch for me fitness-wise. Feels great to punch something and not hurt yourself or anyone else. Good stress reliever. I just envision Lispy Lloyd’s face on the bag, and it’s very easy to summon the energy.

The problem with RV and marine loans is not the just delinquency rate, it is the charge-off amount when a repo happens. The loans are often made at 100%+ of wholesale value, so when a unit gets repo’d, the lender is already deep in the hole. Also, the repos tend to be trashed and the cost of finding and repo’ing is exceedingly high.

Then, when the lender tries to liquidate the unit, they are selling into a poor market. It is common for a lender to charge off more than half of the original amount that was financed on these things. Most repos tend to happen at the beginning of the loan, so I think that the delinquency rates are improving simply because there are so few new loans being made and the few lenders that are still standing are being VERY careful who they lend to. Even with all that, I think that it would be very difficult to make money lending on boats and RV’s if you have to contend with a 2% repo rate.

Say Hello

About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

Quote of the Day

"Misers aren't fun to live with, but they make wonderful ancestors." -David Brenner

Sign Up For My Newsletter

Get subscriber only insights and news delivered by Barry every two weeks.